China's export controls on rare earth elements have been a stumbling block in its trade relations with the EU and the U.S. Recently the Chinese government announced it would streamline the issuing of export licenses as its foreign customers were running out of rare earth stocks, which are vital for the manufacturing of various hi-tech products. China has now started to issue export licenses to EU firms and reached an “understanding” with the U.S. on the topic. However, the EU Commission continues to push for a structural solution to a situation that has jumped to the top of the bilateral agenda. European governments and companies have for weeks been lobbying Chinese authorities to ease export restrictions, which were introduced in response to U.S. President Donald Trump’s “reciprocal tariffs” in April.
China’s Commerce Ministry said it had been “accelerating approval of rare earth export licenses” for EU firms in “accordance with the law”. “China stands ready to further enhance communication with relevant countries on export controls, actively facilitating convenient and compliant trade flows,” said Spokesman He Yadong. EU sources stopped short of saying that there was a “green channel” open – a term used by Beijing – but stated they have observed the Ministry granting licenses. Nonetheless, the issue has clouded Beijing’s efforts to improve its trade ties with Europe ahead of a leaders’ summit in China later this month.
While there may be some relief that licenses are beginning to move, the Europeans, who believe they have been unfairly caught in the crosshairs of a superpower trade and tech war, are pushing for a permanent resolution. The EU's head of trade for China, Eva Valle Lagares, said it was “unclear” whether Beijing had “intentionally hit” EU firms to “kill the chickens to scare the monkeys”, or whether it was an unintended by-product of its rivalry with Washington. “In reality, it is probably a mix of everything. We are looking for a far more structural and reliable long-term solution,” Valle said, meaning a return to the open flow of minerals before April, or as a “fallback”, an exemption on licensing requirements for EU firms with no military links. “If we ever needed a business case for de-risking, China is giving us it right now,” Valle Lagares said at a webinar hosted by the German Marshall Fund for the United States, a non-profit think tank.
The EU’s Deputy Director General for Trade, Maria Martin-Prat, described the controls as “disturbing”. “We are seeing, in the case of China, an expansion of what can be covered by export controls and a multiplication of the use of those controls in a manner that is affecting not only rare earths but also critical raw materials and some technologies,” Martin-Prat said at an event hosted by MLex, a Brussels media outlet. Some companies worry that they would have to stop manufacturing due to a cut in supplies of rare earths.
Expectations in the EU are low ahead of the July 24 and 25 Summit, where the bloc will be represented by European Commission President Ursula von der Leyen and European Council President Antonio Costa. The sides will first meet in Beijing, followed by a second day in Anhui province. “It’s really time for China to show it is the reliable trading partner they claim to be,” said Valle Lagares. “Unfortunately, what we’ve seen in recent weeks is rather worrying.” The “next couple of weeks will be decisive” in the overall relationship, she added.
Meanwhile, the United States and China reached a “framework” agreement on how to facilitate rare earth shipments, implementing a deal based on bilateral trade in Geneva, Switzerland, the White House said. “The Administration and China agreed to an additional understanding for a framework to implement the Geneva agreement,” a White House official said. The understanding focuses on “how we can implement expediting rare earths shipments to the U.S. again”. U.S. Commerce Secretary Howard Lutnick explained that China is “going to deliver rare earths to us” and once they do that, “we’ll take down our countermeasures”. Confirmation of the agreement came shortly after U.S. President Donald Trump said the U.S. had signed a trade deal with Beijing a day earlier, offering no further details. President Trump added: “We are starting to open up China, things that could have never happened”.
Efforts to forge a broad trade deal are meant to prevent sharply higher import tariffs from taking effect on August 12, when Trump’s so-called “reciprocal tariffs” – as high as 125% on Chinese goods – could be reimposed. The White House clarification did not elaborate on whether the framework would stop the tariffs from being reimposed. Wendy Cutler of the Asia Society Policy Institute called the agreement a “welcome development” contributing to the de-escalation of Sino-American tensions. Noting that details of the deal were still unclear, Cutler, a former Assistant U.S. Trade Representative, voiced hope that it “lays out in specificity how the resumption of Chinese exports of critical minerals and magnets will be carried out and what the U.S. is expected to do in return in terms of tariffs and export controls,” as reported by the South China Morning Post.
